Sterling Rises to Three-Week High on US-Iran Ceasefire

The British pound recorded its most significant daily gain in three weeks on Wednesday, bolstered by a geopolitical breakthrough. This surge followed an agreement between the United States and Iran for a two-week ceasefire, which sparked widespread market optimism and a sharp decline in energy prices. Sterling is now trading just 0.4% below its valuation prior to the conflict's onset in late February.

The GBP/USD pair climbed 1% to reach $1.342, marking its highest level since March 23. Global energy markets reacted sharply to the news, with Brent Crude Oil futures dropping by as much as 16% during early trading. The truce is expected to facilitate the reopening of the Strait of Hormuz, a critical maritime corridor that had been effectively blocked since the start of hostilities.

Money markets indicated that traders have scaled back their expectations for aggressive interest rate hikes by major central banks this year. Prior to the ceasefire announcement, markets were pricing in at least two rate hikes from the Bank of England. Current projections have shifted significantly, with traders now anticipating just one hike in 2026 and only a marginal probability of a second.

Against the euro, the pound saw a marginal increase as the EUR/GBP pair traded at 87.12 pence. ING strategist Chris Turner noted that the movement was somewhat unexpected given that investors have not reduced their expectations for the European Central Bank as aggressively as they have for the Bank of England.

One might have thought EUR/GBP could be trading a little higher were Bank of England policy tightening to be priced out more quickly than that of the ECB.

Despite the shift in monetary policy expectations, the pound remains resilient. The currency pair continues to trade above the 0.8700 level and is anticipated to find solid support on any price dips as the market continues to process the implications of the regional truce.